AN APPRAISAL OF
HEALTHSOUTH REHABILITATION CENTER
OF VIRGINIA BEACH
VIRGINIA BEACH, VIRGINIA
(LOGO) VALUATION COUNSELORS GROUP, INC.
340 Interstate North Parkway
Atlanta, Georgia 30339
(404) 955-0088
(Fax) 955-0466
February 7, 1994
HealthSouth Corporation
Two Perimeter Park South
Birmingham, Alabama 35243
Attention: Mr. Mike Martin, Treasurer
Gentlemen:
In accordance with your request, we are pleased to submit this appraisal report
covering the market value of the professional office building identified as
follows:
HEALTHSOUTH REHABILITATION CENTER OF VIRGINIA BEACH
1849 OLD DONATION PARKWAY
RICHMOND, VIRGINIA
The purpose of this valuation is to estimate the market value of the subject
property's leased fee estate as of September 29, 1993, the effective date of
this report. The report is to be used for asset valuation purposes.
HealthSouth Corporation is selling nine professional office buildings for the
purpose of establishing a real estate investment trust (REIT). This valuation
assumes that the prospective REIT is the owner of the property, with
HealthSouth Corporation guaranteeing net rental income of $18.00 per square
foot.
This appraisal investigation includes visits to the facility, discussions with
the current owners and management of the property, a review of available
financial data, discussions with local brokers and government offices, and
research and analysis of the market.
'Market value' is defined as:
'The most probable price which a property should bring in a
competitive and open market under all conditions requisite to a fair
sale, the buyer and seller each acting prudently and knowledgeably,
and assuming the price is not affected by undue stimulus. Implicit in
this definition is the consummation of a sale as of a specified date
and the passing of title from seller to buyer under conditions
whereby:
o Buyer and seller are typically motivated;
HealthSouth Corporation
February 7, 1994
Page Two
o Both parties are well informed or well advised, and acting in
what they consider their own best interests;
o A reasonable time is allowed for exposure in the open market;
o Payment is made in terms of cash in U.S. dollars or in terms
of financial arrangements comparable thereto; and
o The price represents the normal consideration for the property
sold unaffected by special or creative financing or sales
concessions granted by anyone associated with the sale.'
[The Appraisal of Real Estate, p. 21, 10th Ed., published by The
Appraisal Institute].
The subject property is a one-story rehabilitation center/office building
containing 10,000 rentable square feet of office space. The building is a
Class C facility, with a steel frame and overlapped wood siding exterior walls
constructed in 1993. The building is currently 100 percent occupied.
In arriving at the opinion expressed in this report, it is assumed that the
title to the property is free and clear and held under responsible ownership.
The information furnished us by others is believed to be reliable, but no
responsibility for its accuracy is assumed. The value reported herein is based
upon the integrity of the information provided.
Based upon the procedures, assumptions and conditions outlined in this report,
we estimate the market value of the leased fee interest in the HealthSouth
Rehabilitation Center of Virginia Beach, as of September 29, 1993, to be:
$1,460,000
==========
We have no responsibility to update our report for events and circumstances
occurring after the date of this report.
HealthSouth Corporation
February 7, 1994
Page Three
Neither the whole, nor any part of this appraisal or any reference thereto may
be included in any document, statement, appraisal or circular without Valuation
Counselors Group, Inc.'s prior written approval of the form and context in
which it appears.
This appraisal report consists of the following:
o This letter outlining the services performed;
o Certification of the appraisers;
o A Statement of Facts and Limiting Conditions;
o A Summary of Salient Facts and Conclusions;
o A Narrative Section detailing the appraisal of the property;
and
o An Exhibit Section containing supplementary data.
A copy of this report and the working papers from which it was prepared will be
kept in our files for eight years.
Respectfully submitted,
VALUATION COUNSELORS GROUP, INC.
/s/ Patrick J. Simers
---------------------
Patrick J. Simers
Managing Director
APPRAISER CERTIFICATION
We, the undersigned, do hereby certify that to the best of our knowledge and
belief:
The statements of fact contained in this report are true and correct.
The reported analyses, opinions, and conclusions are limited only by
the reported assumptions and limiting conditions and are our personal,
unbiased professional analyses, opinions and conclusions.
We have no present or prospective interest in the property that is the
subject of this report, and have no personal interest or bias with
respect to the parties involved.
Our compensation is not contingent on an action or event resulting
from the analyses, opinions, or conclusions in or the use of this
report.
Our analyses, opinions, and conclusions were developed, and this
report has been prepared in conformity with the requirements of the
Code of Professional Ethics, the Appraisal Institute, American Society
of Appraisers, and the Uniform Standards of Professional Appraisal
Practice.
The use of this report is subject to the requirements of the Appraisal
Institute and American Society of Appraisers relating to review by its
duly authorized representatives.
Cheryl Worthy-Pickett, the primary appraiser of this property, has
made a personal inspection of the property that is the subject of this
report.
/s/ Patrick J. Simers /s/ Cheryl Worthy-Pickett
--------------------- -------------------------
Patrick J. Simers Cheryl Worthy-Pickett
Managing Director Senior Appraiser
STATEMENT OF FACTS AND LIMITING CONDITIONS
Valuation Counselors Group, Inc. strives to clearly and accurately disclose the
assumptions and limiting conditions that directly affect an appraisal analysis,
opinion, or conclusion. To assist the reader in interpreting this report, such
assumptions are set forth as follows:
Appraisals are performed, and written reports are prepared by, or under the
supervision of, members of the Appraisal Institute in accordance with the
Institute's Standard of Professional Practice and Code of Professional Ethics.
Appraisal assignments are accepted with the understanding that there is no
obligation to furnish services after completion of the original assignment.
If the need for subsequent services related to an appraisal assignment (e.g.,
testimony, updates, conferences, reprint or copy services) is contemplated,
special arrangements acceptable to Valuation Counselors Group, Inc. must be
made in advance. Valuation Counselors Group, Inc. reserves the right to make
adjustments to the analysis, opinions and conclusions set forth in the report
as we may deem necessary by consideration of additional or more reliable data
that may become available.
No opinion is rendered as to legal fee or property title, which are assumed to
be good and marketable. Prevailing leases, liens and other encumbrances,
including internal and external environmental conditions and structural
defects, if any, have been disregarded, unless otherwise specifically stated in
the report. Sketches, maps, photographs, or other graphic aids included in
appraisal reports are intended to assist the reader in ready identification and
visualization of the property and are not intended for technical purposes.
It is assumed that: no opinion is intended in matters that require legal,
engineering, or other professional advice which has been or will be obtained
from professional sources; the appraisal report will not be used for guidance
in legal or professional matters exclusive of the appraisal and valuation
discipline; there are no concealed or dubious conditions of the subsoil or
subsurface waters including water table and floodplain, unless otherwise noted;
there are no regulations of any government entity to control or restrict the
use of the property unless specifically referred to in the report; and the
property will not operate in violation of any applicable government
regulations, codes, ordinances or statutes.
In the absence of competent technical advice to the contrary, it is assumed
that the property being appraised is not adversely affected by concealed or
unapparent hazards, such as, but not limited to, asbestos, hazardous or
contaminated substances, toxic waste or radioactivity. The appraiser is not
qualified to detect such substances.
STATEMENT OF FACTS AND LIMITING CONDITIONS
No engineering survey has been made by the appraiser. Except as specifically
stated, data relative to size and area were taken from sources considered
reliable, and no encroachment of real property improvements is considered to
exist.
Information furnished by others is presumed to be reliable, and where so
specified in the report, has been verified; however, no responsibility, whether
legal or otherwise, is assumed for its accuracy, and cannot be guaranteed as
being certain. All facts and data set forth in the report are true and
accurate to the best of Valuation Counselors Group, Inc.'s knowledge and
belief. No single item of information was completely relied upon to the
exclusion of other information.
It should be specifically noted by any prospective mortgagee that the appraisal
assumes that the property will be competently managed, leased, and maintained
by financially sound owners over the expected period of ownership. This
appraisal engagement does not entail an evaluation of management's or owner's
effectiveness, nor are we responsible for future marketing efforts and other
management or ownership actions upon which actual results will depend.
No effort has been made to determine the impact of possible energy shortages or
the effect on this project of future federal, state or local legislation,
including any environmental or ecological matters or interpretations thereof.
The date of the appraisal to which the value estimate conclusions apply is set
forth in the letter of transmittal and within the body of the report. The
value is based on the purchasing power of the United States dollar as of that
date.
Neither the report nor any portions thereof, especially any conclusions as to
value, the identity of the appraiser, or Valuation Counselors Group, Inc.,
shall be disseminated to the public through public relations media, news media,
sales media or any other public means of communications without the prior
written consent and approval of Valuation Counselors Group, Inc.
Unless otherwise noted, Valuation Counselors Group, Inc. assumes that there
will be no changes in tax regulations.
No significant change is assumed in the supply and demand patterns indicated in
the report. The appraisal assumes market conditions observed as of the current
date of our market research stated in the letter of transmittal. These market
conditions are believed to be correct; however, the appraisers assume no
liability should market conditions materially change because of unusual or
unforeseen circumstances.
STATEMENT OF FACTS AND LIMITING CONDITIONS
The report and the final estimate of value and the prospective financial
analyses included therein are intended solely for the information of the person
or persons to whom they are addressed, solely for the purposes stated and
should not be relied upon for any other purpose. Any allocation of total price
between land and the improvements as shown is invalidated if used separately or
in conjunction with any other report.
A copy of this report and the working papers from which it was prepared will be
kept in our files for eight years.
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
GENERAL DATA
Effective Date of Value: September 29, 1993
Last Date of Inspection: September 28, 1993
Property Identification: HealthSouth Rehabilitation Center of Virginia Beach
Property Location: 1849 Old Donation Parkway, Virginia Beach, Virginia Beach County, Virginia
Interest Appraised: Leased Fee Estate
Gross Building Area: 12,500 square feet
Net Rentable Area: 10,000 square feet
Subject Land Size: 1.10 acres, or 48,000 square feet
Ground lease with Holcar, Inc. for five years.
Improvements Description: One-story, steel frame structure, Class C rehabilitation center/office
building that was constructed in 1993.
Occupancy Percentage: 100%
CONCLUSIONS
Cost Approach: $1,177,000
Direct Sales Comparison Approach: $1,500,000
Income Approach: $1,460,000
Final Value Estimate: $1,460,000
==========
Sale to REIT Price: $1,460,000
==========
TABLE OF CONTENTS
Page
Transmittal Letter
Appraiser Certifications
Statement of Facts and Limiting Conditions
Summary of Salient Facts and Conclusions
INTRODUCTION 1
Property Identification 1
Purpose and Effective Date of the Appraisal 1
Function of the Appraisal 1
Scope of the Appraisal 1
Property Rights Appraised 2
Definition of Value 2
History of the Property 3
History and Nature of the Business Environment 3
Market Data - Metropolitan Virginia Beach/Virginia Beach County 5
DESCRIPTIVE DATA 6
Regional Analysis 6
Neighborhood Analysis 9
Zoning 9
Real Estate Taxes and Assessments 10
Site Analysis 10
Building and Site Improvements 11
HIGHEST AND BEST USE 13
VALUATION SECTION 17
Valuation Methodology 17
Cost Approach 18
Direct Sales Comparison Approach 22
Income Approach 30
CORRELATION AND CONCLUSION 33
TABLE OF CONTENTS
EXHIBIT SECTION
Exhibit A - Professional Qualifications
Exhibit B - Location Map
Exhibit C - Area Map
Exhibit D - Tax Plat Map
Exhibit E - Building Description
Exhibit F - Land Improvements Description
Exhibit G - Rent Comparables Summary
Exhibit H - Subject Photographs
Exhibit I - Ground Lease Agreement
INTRODUCTION
PROPERTY IDENTIFICATION
The subject of this appraisal is the HealthSouth Rehabilitation Center of
Virginia Beach, located at 1849 Old Donation Parkway, Virginia Beach, Virginia
Beach County, Virginia. The building is a one-story, Class C, building
constructed in 1993.
PURPOSE AND EFFECTIVE DATE OF THE APPRAISAL
The purpose of this appraisal is to estimate the market value of the real
property identified above. The effective date of valuation is September 29,
1993, the date of our last inspection.
FUNCTION OF THE APPRAISAL
The report is to be used for internal financial valuation purposes. The owners
are considering the sale of nine professional office buildings for the purpose
of establishing a real estate investment trust (REIT). The subject property
would be included in that sale.
SCOPE OF THE APPRAISAL
This appraisal engagement includes all three of the standard valuation
approaches and is in conformity with the requirements of the Code of
Professional Ethics and Standards of Professional Practice of the Appraisal
Institute and Society of Real Estate Appraisers. The scope of our assignment
included collecting, verifying and analyzing market and property data
applicable to the three approaches and consistent with the property's highest
and best use. The results of the three approaches are then reconciled into a
final value conclusion considering the relevancy and quality of data presented
in each of the approaches.
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PROPERTY RIGHTS APPRAISED
The property right appraised herein is the Leased Fee Estate.
'Leased Fee Estate' is:
'an ownership held by the landlord with the right of use and occupancy
conveyed by lease to others; the rights of lessor (the leased fee
owner) and leased fee are specified by contract terms contained within
the lease.'
[The Appraisal of Real Estate, p. 123, 10th Ed., published by The
Appraisal Institute].
DEFINITION OF VALUE
For the purpose of this valuation, 'market value' is defined as follows:
'The most probable price which a property should bring in a
competitive and open market under all conditions requisite to a fair
sale, the buyer and seller each acting prudently and knowledgeably,
and assuming the price is not affected by undue stimulus. Implicit in
this definition is the consummation of a sale as of a specified date
and the passing of title from seller to buyer under conditions
whereby:
o Buyer and seller are typically motivated;
o Both parties are well informed or well advised, and acting in
what they consider their own best interests;
o A reasonable time is allowed for exposure in the open market;
o Payment is made in terms of cash in U.S. dollars or in terms
of financial arrangements comparable thereto; and
o The price represents the normal consideration for the property
sold unaffected by special or creative financing or sales
concessions granted by anyone associated with the sale.'
[The Appraisal of Real Estate, p. 21, 10th Ed., published by The
Appraisal Institute].
-2-
HISTORY OF THE PROPERTY
The subject professional building was constructed in 1993 by HealthSouth
Rehabilitation Corporation. The building is constructed on approximately 1.10
acres, which is leased from Holcar, Inc., a Virginia stock corporation. This
ground lease is for an initial period of five years, with five-year renewal
periods. The commencement date of the lease is November 1992. The annual
yearly payment is $17,496 which is net to the Lessor. Adjustments to the lease
payment will occur every five years. A copy of this lease is included in the
Exhibit Section of this report.
The subject rehabilitation center building has reportedly not been marketed for
sale and is not currently under an agreement of sale. No other deed transfers
were noted in the last three years. A title search is recommended for official
determination.
HISTORY AND NATURE OF THE BUSINESS ENVIRONMENT
United States Economic Performance and Outlook
The value of the business enterprise value is influenced by potential returns
available from alternative investments. These return expectations are affected
by economic conditions as they impact the ability of a business enterprise to
generate a return on its invested capital. Perhaps the most important economic
indicator affecting potential investor returns is the aggregate demand for
goods and services. Aggregate demand is measured by a country's Gross Domestic
Product (GDP), which is the sum of all domestic expenditures for consumption,
government services, and net exports.
As of the valuation date, the United States economy is currently mired in a
period of slow economic growth. Gross Domestic Product (GDP) increased at a
2.1 percent annual rate during 1992 after declining (1.2%) during 1991. The
GDP was 0.7 percent and 1.6 percent, respectively, for the first and second
quarters of 1993, or an annualized rate of 1.1 percent.
The components of GDP indicate that the economic recovery is affecting many
sectors of the economy. Personal consumption expenditures, which account for
approximately
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two-thirds of GDP, rose only 1.3 percent during the first half of 1993.
Non-residential Fixed Investment advanced 2.2 percent and Residential Fixed
Investment grew 1.7 percent. Federal Government Purchases declined (0.6%) over
the same period. Federal Government Purchases account for 7.2 percent of the
total GDP, and this decline is limited to the rate of overall GDP growth.
The value of the business enterprise value is also affected by the current and
expected levels of inflation and interest rates. Inflation creates uncertainty
in the mind of investors as they attempt to estimate future investment returns.
This uncertainty is incorporated into both the required return on equity and
debt capital.
The economic downturn has resulted in sharply lower inflation. The Consumer
Price Index (CPI) ended 1992 with a 3.0 percent increase compared to a 4.2
percent increase during 1991. The CPI for 1993 is currently estimated at 3.3
percent. The GDP Deflator, a much broader price level index, ended 1992 with a
2.6 percent annual increase compared to a 4.0 percent increase during 1991.
The GDP Deflator is currently estimated at 2.5 percent for 1993.
The Federal Reserve Bank has adopted a relatively easier monetary policy as a
result of the recession. Interest rates, as represented by long-term Treasury
bond yields, declined approximately ten basis points compared to rates existing
a year earlier. Long-term corporate bond rates have also decreased and the
Federal Reserve's discount rate reductions have prompted commercial banks to
lower their prime lending rate to 6.0 percent. Selected monetary statistics
are presented in the following table.
INTEREST RATES AND SELECTED STATISTICS
JUNE 30, 1993 JANUARY 2, 1992
Federal Fund Rate 3.0% 3.9%
90-Day Treasury Bill Rate 3.1% 3.9%
30-Year Treasury Bond 6.9% 7.5%
Aaa Bond Yield 7.4% 8.2%
Prime Rate 6.0% 6.5%
-4-
Economic Outlook
According to Value Line's Quarterly Economic Review, dated June 30, 1993, the
economic recovery is now two years old, but shows much slower growth than
normal for a mature recovery. Among factors cited by Value Line for
contributing to the slow growth are 'high debt, stagnant personal income, low
consumer confidence and a troubling unemployment rate'. Value Line's Quarterly
Economic Review identified the following estimates for selected economic
statistics from 1993 to 1995.
1993 1994 1995
Real GDP 2.7% 3.2% 3.3%
Personal Consumption Expenditures 2.8% 2.7% 2.5%
Federal Government Purchases (5.2%) (3.0%) (4.0%)
30-Year Treasury Bond Yields 7.1% 7.2% 7.2%
Prime Rate 6.0% 6.3% 6.7%
Consumer Price Index 3.5% 3.5% 3.6%
MARKET DATA - Metropolitan Virginia Beach/Virginia Beach County
Based upon a study prepared by Goodman Segar Hogan-Odu Real Estate Center, the
average occupancy is approximately 82.1 percent throughout the Hampton Roads
Metropolitan Statistical Area (MSA). This survey includes Class A, B and C
space, buildings exceeding 10,000 square feet in leasable area, are non-medical
in primary use, and are not exclusively owner-occupied.
In the Hampton Roads area, there is approximately 15.2 million square feet of
office space available with the highest rents found in the downtown area.
Medical office space is estimated to be approximately 15 percent to 20 percent
higher than the general professional office space in the market. Based upon
our discussions with local realtors in the marketplace, medical office space
(in proximity to the hospital) has an estimated average occupancy of 85 percent
to 90 percent.
-5-
DESCRIPTIVE DATA
REGIONAL ANALYSIS
The subject facility is located in Virginia Beach, Virginia, which is located
in the eastern portion of the Hampton Roads MSA. The Hampton Roads MSA
encompasses the nine cities and three counties in the Norfolk-Virginia
Beach-Newport News MSA. The 1,707 square mile region is bounded by the
Atlantic Ocean and the Chesapeake Bay and crisscrossed by dozens of rivers and
creeks.
Hampton Roads is made up of Gloucester County, James City County, York County,
Williamsburg, Newport News, Poguoson and Hampton on the Virginia Peninsula.
Just across the Hampton Roads Bridge Tunnel are the south side cities of
Norfolk, Portsmouth, Virginia Beach, Suffolk and Chesapeake. Together they
form the county's 28th most populous MSA, with nearly 1.4 million residents.
Hampton Roads is renowned for building Navy submarines and aircraft carriers,
growing peanuts, and importing most of the nation's rubber through the Port of
Hampton Roads. The region has Virginia's most populous city (Virginia Beach),
as well as its largest city (Suffolk). It also has the state's fastest-growing
county (Gloucester).
Population
From 1980 to 1988, Hampton Roads' population grew by 227,789, or 19.63 percent.
Although some transplants were military personnel, many civilians were lured to
the rapidly expanding region by the promise of jobs in shipbuilding,
construction, or the service sector.
Like northern Virginia, Hampton Roads benefited from a rapid influx of defense
contractors, consultants and service firms that responded to the government's
military build-up in the 1980s, but Hampton Roads, with several older
land-locked cities, did not have the steady across-the-board growth that
northern Virginia experienced. While rural
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areas in Virginia Beach and James City County boomed with new neighborhoods,
urban cities such as Norfolk and Portsmouth grew only slightly.
Transportation
Interstate 95 connects Chesapeake with northern Virginia. Interstate 64, the
principal east-west highway in the state, intersects Interstate 95 in the
Richmond/Petersburg MSA and heads east to the Norfolk area and west to
Charlottesville.
Employment - Income
In 1988, there were 792,265 workers in Hampton Roads according to the Center
for Public Service at the University of Virginia. One-third held some type of
government or military job -- a drop from the 37.8 percent share in 1980.
Services is the next largest job category with 171,437 employees, followed by
retail trade, construction and manufacturing. Although its jobs are primarily
seasonal, tourism remains an employment mainstay in Williamsburg and Virginia
Beach.
A marketing study by WVEC Television shows that 57 percent of Hampton Roads'
adults work full-time, 11 percent work part-time, 4.0 percent are students, and
14 percent are retired. In Virginia, per capita income was $15,516 in 1987,
the most recent year in which data was available. In Hampton Roads, the figure
was $14,462, which placed it 143rd among 310 MSAs across the country. The only
Virginia areas to top the national figure were northern Virginia, with a per
capita income of $21,539 and Richmond/Petersburg with $17,446.
-7-
Healthcare
Healthcare facilities abound in the Hampton Roads area. The following is a
list of local hospitals:
Number
Facility of Units
Chesapeake General 210
DePaul Medical Center 390
First Medical Group Langley 70
Humana Hospital Bayside 250
Louise Obici Memorial 243
Mary Immaculate Hospital 110
McDonald Army 57
Newport News General 126
Norfolk Community 189
Portsmouth General 311
Riverside Middle Peninsula 71
Riverside Regional Medical Center 57
Sentara Hampton General 343
Sentara Norfolk General 644
Sentara Leigh Hospital 250
Tidewater Beach General 263
Veteran's Administration 411
Williamsburg Community 139
Conclusion
Development over the next decade is expected to be at a pace slightly above
that of the state average, but below that of Northern Virginia. The next
several years will likely be very sluggish until the economy recovers from its
current doldrums. This community should continue to offer a stable environment
for operation and growth in the future.
-8-
NEIGHBORHOOD ANALYSIS
The neighborhood area's boundaries are Old Donation Parkway to the north, First
Colonial Drive to the east, Lasken Road to the south, and Great Neck Road to
the west.
The immediate area is primarily medical or professional developments
surrounding the subject, with small sections of modest single-family homes and
multi-family developments to the north and east of the subject. Located just
east of the facility, along First Colonial Drive, is Tidewater General
Hospital. Development along First Colonial Drive is mainly
office-institutional in nature. Located further south, along First Colonial
Drive, are more retail/commercial developments. West of the subject, along Old
Donation Parkway toward Great Neck Road, is more of the residential
development.
The area has convenient access to State Road 44, the Virginia Beach Toll Road
providing access to Interstate 64, a major east/west thoroughfare in the state
of Virginia.
The immediate surrounding area is supportive and complementary to the continued
growth potential of the subject facility. The development has also contributed
to continued growth of the neighborhood.
ZONING
The subject property is zoned 'O-I', Office-Institutional, by the Virginia
Beach County Zoning District. The purpose of this district is to provide for
office buildings in attractive surroundings with other types of similar uses.
The subject improvement is considered a legal, conforming use. Principle uses
included in this zoning district are as follows:
Office buildings
General hospitals
Hotels or motels
Retail and service facilities
Schools
Banks
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REAL ESTATE TAXES AND ASSESSMENTS
Based upon the assessment record available, the subject property has not been
added to the tax roll. Its assessment is currently being determined. The
property will be taxed based upon 100 percent of the assessed value.
SITE ANALYSIS
The subject site is located on the south side of Old Donation Parkway in the
northern section of Virginia Beach, Virginia. The street address is 1849 Old
Donation Parkway, Virginia Beach, Virginia. As indicated by the plat map
included in the Exhibit Section of this report, the site is irregular in shape
and contains a total of approximately 1.10 acres. A survey of the land parcel
was not provided to us, but we have included (in the Exhibit Section of this
report) a copy of the tax plat showing the entire parcel owned by Holcar, Inc.
Access to the site is via Old Donation Parkway to the north via First Colonial
Drive; both being four-lane roadways.
The subject land is approximately level with grade on Old Donation Parkway.
Utilities to the site include water, sewer, electricity, cable, telephone and
gas.
The subject property appears to have adequate drainage and soil load-bearing
capabilities to support most development alternatives. A soil report, however,
was not made available to the appraiser and it is assumed, based on existing
improvements, that soil load-bearing capabilities are adequate.
According to the County Planning Office, the subject property is not located in
a flood plain zone.
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BUILDING AND SITE IMPROVEMENTS
Building
The medical office building is a Class C, one-story structure containing 10,000
square feet constructed in 1993. The building is of good construction and is
in excellent condition. The building is considered competitive in condition to
other office buildings in the area.
The building's foundation consists of concrete walls and footings supporting
exterior walls. The floor is poured-in-place concrete. Exterior walls consist
of overlapped wood siding with brick cover in sections. Windows and doors are
aluminum and glass with some limited solid-core metal doors. The roof is
gabled with asphalt shingles.
The building is partitioned by gypsum board on metal stud partitions. Wall
finishes are typically paint and vinyl wall covering. Wood and metal doors in
metal door jambs are typical throughout. Ceiling finishes are primarily
drop-down acoustical panels. Floor finishes are primarily carpeting and vinyl
tile with portions of the building having ceramic and quarry tile. Main areas
in the building include therapy areas, offices and public areas.
Mechanical services consist of standard plumbing fixtures, and a central
heating and air conditioning system supported by roof-top units. Electrical
wiring is in conduit with fluorescent and incandescent light fixtures typical
throughout.
Site
Land improvements consist of general landscaping, asphalt paving, concrete
paving and curbing, exterior lighting, and general signage.
More detail descriptions of the buildings and site improvements are included in
the Exhibit Section of this report.
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CONDITION OF IMPROVEMENTS AND OBSOLESCENCE
The building is in excellent overall condition. It appears to have been
adequately maintained. No significant deferred maintenance was indicated from
the appraiser's inspection of the property. There does not appear to be any
functional or economic obsolescence.
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HIGHEST AND BEST USE
The Appraisal Institute defines 'highest and best use' as follows:
'The reasonably probable and legal use of vacant land or an improved
property, which is physically possible, appropriately supported,
financially feasible, and that results in the highest value.'
[The Appraisal of Real Estate, p. 45, 10th Ed. published by The
Appraisal Institute]
The four categories of highest and best use analysis are:
1. Physically Possible - Uses which are physically possible for
the site and improvements being analyzed.
2. Legally Permissible - Uses permitted by zoning and deed
restrictions applicable to the site and improvements being
analyzed.
3. Financially Feasible - This step identifies if the physically
possible and legally permitted alternatives produce a net
income equal to or greater than the amount needed to satisfy
operating expenses.
4. Maximally Productive - This step clarifies which of the
financially feasible alternatives provides the highest value
consistent with the rate of return warranted by the market for
a particular use.
There are two types of highest and best use: THE HIGHEST AND BEST USE OF LAND
AS VACANT and THE HIGHEST AND BEST USE OF A PROPERTY AS IMPROVED. Both types
are discussed as follows using the four categories of highest and best use.
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As Vacant
The purpose of this analysis, given the site is vacant or can easily be made
vacant, is to determine if something should be constructed on the site, and, if
so, what should be constructed on the site.
PHYSICALLY POSSIBLE
The size and shape of the subject site is adequate for the development of a
number of alternative uses including small residential, commercial,
office/institutional, industrial and special-purpose properties. The site
possesses good access and visibility. The size of the parcel would preclude
any large developments.
LEGALLY PERMISSIBLE
As stated earlier in the Zoning Section of this report, the property is
currently zoned 'O-I', Office-Institutional. Permitted uses in this general
zoning category vary widely. Potential legal uses would include some retail
and restaurants, office/institutional, hotels, hospitals and other
medical-oriented uses.
Surrounding uses include the hospital, other professional office uses, some
apartments and some old single-family residential properties. These use
patterns would likely preclude industrial, retail or future single-family
development on the site.
FINANCIALLY FEASIBLE
Having established that the site is physically suited for and legally
restricted to office/institutional development, the next consideration is
economic feasibility. Financially feasible uses for the site, if vacant, are
those uses that would generate an economic return to the land. The location of
a large medical facility nearby would tend to suggest that related medical
improvements possibly would be in demand. Tidewater General Hospital is
currently expanding and has an average census of 98 percent. The subject
facility is currently 100 percent occupied.
-14-
MAXIMALLY PRODUCTIVE
The maximally productive use is a financially feasible use that would produce
the greatest land value. Office/institutional use is physically possible and
legally permissible, and new development is financially feasible. Based on
this analysis, the current highest and best use of the land, if vacant, would
be for office/institutional development.
As Improved
The subject site is currently improved with a 10,000 rentable square foot
office building and associated site improvements. The purpose of this
discussion is to determine whether to leave the improvements as they are, to
modify the improvements or to remove the improvements.
PHYSICALLY POSSIBLE
It would obviously be physically possible to leave the improvements as they
are, to demolish the existing improvements and replace them with new
improvements, or to make minor repairs to the deferred maintenance items on the
property. The improvements are considered functional.
LEGALLY PERMISSIBLE
The improvements, as improved, are a legal conforming use according to the
County of Virginia Beach zoning guidelines. Under the zoning, the property
could remain as it is, be torn down or renovated.
FINANCIALLY FEASIBLE
The highest and best use of the land, if vacant, was to develop with an office/
institutional use based on the adjacent hospital's growth needs. Of the
physically possible and legally permissible changes that could be made to the
existing facility, demolishing the building would significantly reduce the
current asset value, and would
-15-
not be financially feasible. It would, however, be financially feasible to
correct any deferred maintenance.
MAXIMALLY PRODUCTIVE
The maximally productive use for the existing property is the financially
feasible use that produces the greatest property value. The only financially
feasible use is to correct any deferred maintenance that currently exist. This
will enable to the property to remain competitive in the leasing market. The
highest and best use, as improved, is to not make any major changes to the
current asset use. The improvements represent the current highest and best use
of the property.
-16-
VALUATION SECTION
VALUATION METHODOLOGY
There are three principal methods to estimate the market value of the assets of
the subject property. These are summarized as follows:
COST APPROACH: This method is based on the principle of substitution,
whereby no investor would prudently pay more for a property than it
costs to buy land and build a comparable new building. The market
value is estimated by calculating the replacement costs of a new
building and subtracting all forms of depreciation and obsolescence
present in the existing facility. This provides a depreciated value
of the subject improvements if replaced new. The estimate of the
current value of the subject land is then added to provide a market
value of the property.
DIRECT SALES COMPARISON APPROACH: The principle of substitution also
says that market value can be estimated as the cost of acquiring an
equally desirable substitute property, assuming no costly delay in
making the substitution. This method analyses the sales of other
comparable improved properties. Since two properties are rarely
identical, the necessary adjustments for differences in quality,
location, size, services and market appeal are a function of appraisal
experience and judgment.
INCOME APPROACH: This method is based on the principle of
anticipation, which recognizes that underlying value of the subject
property can be estimated by its cash flow or stream of earnings.
This approach simulates the future earnings for the property, and
converts those earnings into a present market value estimate.
Consideration has been given to each of the three methods to arrive at a final
opinion of value. The application of each approach to value is further
discussed in the appropriate sections which follow.
-17-
COST APPROACH
In the Cost Approach, the subject property is valued based upon the market
value of the land, as if vacant, to which is added the depreciated replacement
cost of the improvements. The replacement cost new of the improvements is
adjusted for accrued depreciation resulting from physical deterioration,
functional obsolescence, and external (or economic) obsolescence.
The cost analysis involves three basic steps:
o Land value estimate.
o Estimated replacement cost of the improvements.
o Estimation of the accrued depreciation from all causes.
The sum of the market value of the land and the depreciated replacement cost of
the improvements and equipment is the estimated market value via the Cost
Approach.
Land Valuation
Because the subject land is under a ground lease, we have not considered it in
our valuation.
Building and Site Improvements
The building and site improvements have been valued on the basis of replacement
cost less accumulated depreciation. The cost new was estimated via the
segregated cost method, with cost factors obtained from Marshall Valuation
Services, Inc., a national cost manual. The unit cost includes both direct and
indirect costs, with adjustments made for special building features,
construction quality, time and location. The composite unit cost has then been
applied to the gross square footage of the building to derive the replacement
cost new. The total project replacement costs for the subject building are
estimated to be $1,132,380.
-18-
The total accumulated depreciation of a structure represents the loss in value
due to physical deterioration, functional obsolescence, or external (or
economic) obsolescence. Economic life of a structure or improvement is the
period over which they contribute to the value of the property. These terms
are defined as follows:
Physical Deterioration: The loss in value due to deterioration or
ordinary wear and tear, i.e., natural forces taking their toll of the
improvements. This begins at the time the building is completed and
continues throughout its physical life.
Functional Obsolescence: The loss in value due to poor plan,
functional inadequacy, or super-adequacy due to size, style, design, or
other items. This form of depreciation occurs in both curable or
incurable forms.
External (or Economic) Obsolescence: The loss in value caused by
forces outside the property itself. It can take many forms such as
excessive noise levels, traffic congestion, abnormally high crime
rates, or any other factors which affect a property's ability to
produce an economic income, thereby causing a decline in desirability.
Other forms of economic obsolescence may include governmental
restrictions, excessive taxes, or economic trends.
Economic Life: The economic life of a good quality medical office
buildings is typically 40 to 50 years. For the subject Class C
building, we have assumed an economic life of 45 years.
Remaining Economic Life: Remaining economic life can be defined as the
number of years remaining in the economic life of the structure or
structural components as of the date of the appraisal.
Marshall Valuation Services, Inc., and the actual experience of other buildings
in the market, were use to estimate the overall economic life of the
improvements. The assignment of economic lives assumed that, except for the
building shell and foundation, building components would be replaced
periodically over the life of the building.
-19-
Physical Depreciation
The amount of physical depreciation and obsolescence in the subject building is
judged normal for a building of this age since it was constructed in 1993.
Observation of the subject property indicated that the structure and related
component parts have been adequately constructed and currently are being
maintained through a continuous maintenance service program.
Building
The subject property was constructed in 1993 and is in excellent condition.
Because of the recent construction, we have not considered depreciation as
applicable at this time.
Site Improvements
Because of the recent construction of the property, a depreciation factor was
not considered applicable at this time.
Cost Approach Conclusion
The schedule on the following page is a summary of the estimated replacement
cost by category for the subject building plus estimates of all forms of
depreciation.
Based on the investigation as previously defined, the market value of the
subject property by the Cost Approach, as of September 29, 1993, is:
$1,177,000
==========
-20-
SUMMARY OF REPLACEMENT COST NEW
HEALTHSOUTH REHABILITATION CENTER
VIRGINIA BEACH, VIRGINIA
REPLACEMENT
COST
Site Preparation 3,821
Foundation 29,717
Frame 64,642
124,223
Floors 44,617
Roof 34,994
Roof Cover 36,185
Partitioning and Built-in 258,125
Ceilings 35,724
Floor Coverings 64,185
Plumbing 60,241
HVAC 63,043
Electrical 68,997
Other Features 66,002
Total Replacement Cost $ 954,950
Architect's Fees Plans and Specs 4.4% 42,018
Architect's Fees Supervision 3.4% 32,468
Entrepreneural Overhead, Profit, and Other
Miscellaneous Fees 10.0% 102,944
Total of Other Costs 177,430
Total Project Replacement Cost $1,132,380
Accrued Depreciation:
Building Costs 0% Straight Line 0/45ths 0
Depreciated Value Building $1,132,380
Site Improvements
Replacement Cost $ 45,000
Depreciated Cost 0% Straight Line 0/20ths 0
Depreciated Value $ 45,000
Plus Land Value GROUND LEASE $ 0
DEPRECIATED COST APPROACH VALUE $1,177,380
-21-
DIRECT SALES COMPARISON APPROACH
The Direct Sales Comparison Approach is based upon the principle of
substitution; that is, when a property is replaceable in the market, its value
tends to be set at the cost of acquiring an equally desirable substitute
property, assuming there is no costly delay in making the substitution. Since
two properties are rarely identical, the necessary adjustments for differences
in quality, location, size, services and market appeal are a function of
appraisal experience and judgment.
The Direct Sales Comparison Approach gives consideration to actual sales of
other similar properties with adjustments as previously stated. The sales
prices are analyzed in common denominators and applied to the subject property
in respective categories to be indicative of market value.
The unit of comparison used in this analysis is the price per square foot,
which is the gross purchase price of the building divided by the net leasable
area in the building. The following sales are considered to be representative
of market activity and conditions as of the valuation date. Unless otherwise
indicated, the sales involved arms-length transactions that conveyed a fee
simple interest, and only real property was included in the transactions.
Also, all purchase prices quoted in this report represent all cash sales unless
seller financing is noted and the sale prices adjusted for cash equivalency.
In our analysis, we obtained details on four professional office building sales
which have occurred over the past two years. The terms of the sale and
significant data was verified to the extent possible by county deed records and
with parties to the transaction. Information on these sales is shown on the
following pages:
-22-
IMPROVED SALE NUMBER 1
GENERAL SALE DATA
Location: 1016 Independence Boulevard, Virginia Beach, Virginia
Date of Sale: May 12, 1992
Deed Book/Page: 3086/1410
Grantor: Diagnostic Center Associates
Grantee: Diagnostic Center of Virginia Beach
Sale Price: $1,586,500
Terms of Sale: Assumption of original note, $568,494 cash
PROPERTY DATA
Land Size: .93 acres
Building Size: 15,000 square feet
Year Built: 1986
STABILIZED OPERATING DATA
Dollars Per SF
--------- --------
Estimated Gross Income: $225,000 $15.00
Vacancy Allowance @ 5%: ($11,250) ($0.75)
--------- -------
Effective Gross Income: $213,750 $14.25
Estimated Expenses @ $3.50/SF ($52,500) $3.50
--------- ------
Net Operating Income: $161,250 $10.75
MARKET VALUE INDICATORS
Sale Price Per Square Foot: $105.77
Stabilized Overall Rate: 10.16%
EGIM: 7.42
COMMENTS
Structure is a one-story, Class C, medical office designed for a single-tenant user. The building is located adjacent to a
hospital.
-23-
IMPROVED SALE NUMBER 2
GENERAL SALE DATA
Location: West side of 20th Street South at the address 908 20th Street South in
Birmingham, Alabama
Date of Sale: December 20, 1991
Deed Book/Page: 4166/170
Grantor: The Byrd Company, Inc.
Grantee: Board of Trustees of the University of Alabama
Sale Price: $3,750,000
Terms of Sale: All Cash
PROPERTY DATA
Land Size: 82,460 square feet
Building Size: 52,440 square feet - gross
44,574 square feet - leasable
Year Built: 1964
STABILIZED OPERATING DATA
Dollars Per SF
--------- --------
Estimated Gross Income: $624,036 $14.00
Vacancy Allowance @ 10%: $62,404 $1.40
------
Effective Gross Income: $561,632 $12.60
Estimated Expenses @ $6.00/SF $222,870 $5.00
-------- ------
Net Operating Income: $338,762 $7.60
MARKET VALUE INDICATORS
Sale Price Per Square Foot: $84.13
Stabilized Overall Rate: 9.0%
EGIM: 6.68
COMMENTS
This three-story building was purchased by the UAB Medical Center. A Medical Genetics Center now occupies the facility. The
current land value near the UAB campus is estimated at 40% to 45% of the total purchase price.
-24-
IMPROVED SALE NUMBER 3
GENERAL SALE DATA
Location: 1260 Upper Hembree Road in Roswell, Fulton County, Georgia
Date of Sale: November 20, 1991
Deed Book/Page: 14752/1-8
Grantor: Upper Hembree Associates II, Ltd.
Grantee: Medical Plaza, Inc.
Sale Price: $4,525,000
Terms of Sale: All Cash
PROPERTY DATA
Land Size: 1.65 acres (approximate)
Building Size: 32,500 square feet
Year Built: 1991
Occupancy at Sale: 100%
STABILIZED OPERATING DATA
Dollars Per SF
--------- --------
Estimated Gross Income*: $671,125 $20.65
Vacancy Allowance @ 5%: $33,556 $1.03
-------- ------
Effective Gross Income: $637,569 $19.62
Estimated Expenses @ $6.00/SF $178,750 $5.50
-------- ------
Net Operating Income: $458,819 $14.12
MARKET VALUE INDICATORS
Sale Price Per Square Foot: $139.23
Stabilized Overall Rate: 10.1%
EGIM: 7.10
COMMENTS
This property included three buildings containing 12,400 SF, 12,000 SF and 8,100 SF. The first two buildings were leased to North
Fulton Hospital for seven years. The first 12,400 SF was leased for $16.00/SF net, and the other 12,000 SF was leased for $16.25/SF
net. The tenants were responsible for all costs but structural maintenance and management.
* The rents were adjusted upward $4.50/SF for gross comparison.
-25-
IMPROVED SALE NUMBER 4
GENERAL SALE DATA
Location: 816 Independence Boulevard, Virginia Beach, Virginia
Date of Sale: August 1991
Deed Book/Page: 3006/1566
Grantor: Humana of Virginia, Inc.
Grantee: MPB, Inc.
Sale Price: $5,011,700
Terms of Sale: Cash to Seller
PROPERTY DATA
Land Size: 3.507 acres (approximate)
Building Size: 35,000 square feet
Year Built: 1977
Occupancy at Sale: 75.0%
STABILIZED OPERATING DATA
Dollars Per SF
--------- --------
Estimated Gross Income*: $630,000 $18.00
Vacancy Allowance @ 5%: $31,500 ($0.90)
-------- -------
Effective Gross Income: $598,500 $17.10
Estimated Expenses @ $5.00/SF $175,000 ($5.00)
-------- -------
Net Operating Income: $423,500 $12.10
MARKET VALUE INDICATORS
Sale Price Per Square Foot: $143.19
Stabilized Overall Rate: 8.45%
EGIM: 8.37
COMMENTS
Built as a four-story Class A building located next to hospital. The construction is steel frame with brick veneer. It is located
north side of Independence Avenue.
-26-
These four sales are summarized as follows:
SUMMARY OF IMPROVED SALES
SALE RENTABLE PRICE PER
NO. ADDRESS (SQUARE FEET) SALE PRICE SQUARE FOOT
1 1016 Independence Blvd 15,000 $1,586,500 $105.77
Virginia Beach, Virginia
2 20th Street South 44,574 $3,750,000 $84.13
Birmingham, Alabama
3 1260 Upper Hembree 32,500 $4,525,000 $139.23
Roswell, Georgia
4 816 Independence Blvd 35,000 $5,011,700 $143.19
Virginia Beach, Virginia
The unadjusted prices of these comparables range from $84.13 per square foot to
$143.33 per square foot. Each of the comparables will be discussed and
adjusted for comparisons with the subject property. An Improved Sales
Adjustment Matrix is shown at the end of this section.
SALE NUMBER 1 is a Class C professional office building that is located
adjacent to a hospital. The facility was acquired by a physician's group to
provide outpatient service in conjunction with the hospital. This transaction
was reportedly at a market value price. However, a downward adjustment is
still indicated because the building never was marketed as a vacant building
due to this relationship. The building has a substantial setback from
Independence Boulevard and has poor visibility. An upward adjustment is
indicated due to this inferior location compared to the subject. An upward
adjustment to this comparable is indicated because of the subject's superior
construction quality. The adjusted price per square foot of this comparable is
$118.99.
SALE NUMBER 2 is the sale of a building purchased by the University of Alabama
to use as a Medical Genetics Center. An upward adjustment was indicated
because of the time of sale. Upward adjustments were indicated because of the
inferior location as
-27-
compared to the subject. An additional upward adjustment was made for and
construction quality. A downward adjustment was made for size. The adjusted
price for this comparable is $119.84 per square foot.
SALE NUMBER 3 was the sale of a three-building professional office facility
that is located approximately one-quarter-mile from the North Fulton Medical
Center in Roswell, Georgia. An upward adjustment was made for time of sale.
Downward adjustments to the price per square foot of this comparable are
indicated for size. Upward adjustments are indicated due to the subject's
superior location and construction quality. The adjusted price per square foot
of this comparable is $144.73.
SALE NUMBER 4 was the August 1992 sale of an office building in Virginia Beach,
Virginia. Upward adjustment was indicated for the time of sale. A downward
adjustment to the price per foot of this comparable is indicated because of the
comparable's size. Downward adjustments are indicated for location, quality
and size. An upward adjustment is warranted for location and quality. A
downward adjustment is indicated for size. The adjusted price for this
comparable is $172.90 per square foot.
The adjusted prices per square foot range from $106.00 to $172.90. An adjusted
price of $150.00 per square foot is representative of the subject property.
Based on this analysis, the market value of the subject hospital by the Direct
Sales Comparison Approach, as of September 29, 1993, the effective date of this
report, is calculated as follows:
10,000 SF x $150.00/SF =
$1,500,000
==========
-28-
I M P R O V E D S A L E S A D J U S T M E N T G R I D
HealthSouth Rehabilitation Center
Virginia Beach, Virginia
Subject Bldg Comp Bldg Comp Bldg Comp Bldg Comp
Element #1 #2 #3 #4
Sale Price/SF $105.77 $84.13 $139.23 $143.19
Property Rights Fee Simple Same Same Same Same
Adjustment ------------------------------------------------------------
Adjusted Price/SF $105.77 $84.13 $139.23 $143.19
Financing Cash Cash Cash Cash Cash
Adjustment ------------------------------------------------------------
Adjusted Price/SF $105.77 $84.13 $139.23 $143.19
Conditions of Sale None None None
Adjustment -10% -10%
------------------------------------------------------------
Adjusted Price/SF $95.19 $84.13 $125.31 $143.19
Market/Time
Adjustment 0% 5% 5% 5%
------------------------------------------------------------
Adjusted Price/SF $95.19 $88.34 $131.57 $150.35
Other Adjustments:
Location Adjustment 15% 15% 10% 10%
Topography Adjustment 0% 0% 0% 0%
Size Adjustment 0% -5% -5% -5%
Zoning Adjustment 0% 0% 0% 0%
Construction Quality 10% 10% 5% 10%
Net Other Adjustments 25% 20% 10% 15%
FINAL ADJUSTED PRICE PER SF $118.99 $106.00 $144.73 $172.90
============================================================
-29-
INCOME APPROACH
The Income Approach is based on the principle of anticipation, and has as its
premise that value is represented by the present worth of expected future
benefits. The price that an investor will pay for an income property usually
depends on the anticipated income stream. The Income Approach represents an
attempt to simulate the future cash flows for the property, and to quantify the
future benefits in present dollars.
The subject property is one of nine professional office buildings that
HealthSouth is selling for the purpose of establishing a real estate investment
trust (REIT). HealthSouth Corporation, the seller, will provide a net rental
guarantee, in the form of a master lease. The REIT, as the new property owner,
will receive the net rental master lease rate per square foot of rentable
office area, regardless of the rental rates charged or received from the actual
physicians/tenants.
This master lease is a credit enhancement vehicle that will enable the REIT
issuer to sell the REIT shares. It will also allow HealthSouth leasing
flexibility for the office space. HealthSouth can lease office space to
various doctors at different rates and terms, or they can use the office space
for hospital purposes. This master lease also guarantees payment regardless of
occupancy levels.
The appraisers received a draft of the form of master lease agreement, but the
actual master lease agreements for each property are not yet available. For
the purpose of our Income Approach, the gross income will be the master lease
rate for each property times the rentable building area. We reserve the right
to modify the Income Approach valuation if the actual master lease for each
property differs significantly from the draft lease presented to us.
The gross income for the subject property is calculated as follows:
10,000 SF x $18.00/SF = $180,000
Because of the guarantee of payment related to the master lease regardless of
occupancy levels, we have not utilized a vacancy allowance for the property.
-30-
Since the master lease provides for an income level to the REIT net of all
operating expenses, the only out-of-pocket expenses to the REIT will be
accounting, legal and internal administration or management expenses. These
management expenses are estimated at 5.0 percent of effective gross income, or
$9,000 based on the management experience of other properties. The net
operating income for the property is $180,000 less $9,000, or $171,000.
Ground Lease
The ground lease payment will be paid by the current owner. Currently, that
payment is $17,496 annually. Our analysis gives consideration that this
payment will be made by the REIT. This would indicate a net operating income
for the property of $153,504.
The estimated direct capitalization rates, or overall rates (OARs), for the
four improved sale comparables presented in the Direct Sales Comparison Section
of this report are summarized as follows:
Sale No. Property Location Sale Date OAR (%)
1 Independence Boulevard May 1992 7.42%
Virginia Beach, Virginia
2 20th Street South December 1992 9.0%
Birmingham, Alabama
3 Upper Hembree November 1991 10.1%
Roswell, Georgia
4 Independence Boulevard August 1991 8.45%
Virginia Beach, Virginia
The direct capitalization, or overall rates, for these comparables ranged from
7.4 percent to 10.1 percent.
A capitalization rate slightly above the upper end of this range, at 10.5
percent, is considered appropriate because of the current physical condition of
the building as compared to the comparable and the guaranteed rents involved.
-31-
Therefore, it is our opinion that the market value of the subject property by
the Income Approach is calculated and rounded as follows:
Net Operating Income/OAR = Estimated Value
$153,504/10.5 = $1,461,942
Rounded to: $1,460,000
==========
-32-
CORRELATION AND CONCLUSION
We have considered three approaches to value in order to estimate the value of
the HealthSouth Rehabilitation Center of Virginia Beach. The three approaches
are summarized as follows:
Cost Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,177,000
Direct Sales Comparison Approach . . . . . . . . . . . . . . . . . . . . $1,500,000
Income Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,460,000
The Cost Approach involved a detailed analysis of the individual components of
the property. These costs were estimated using sources which were considered
to be reliable. For this reason, this approach is only considered a fair
indicator of value for the subject property.
The Direct Sales Comparison Approach is based on the price that investors and
owner-occupants have recently paid for comparable professional office
buildings. The quality and quality of data available in this approach was
considered good, but two of the four sales were not properties located in the
Virginia market. The appraisers only consider this approach to be a fair
indicator of value for the subject property.
The Income Approach normally provides the most reliable value estimate for
professional office buildings such as the subject. Although many buyer of
professional office buildings are owner/occupants, these buyers are generally
aware of a property's cash flow potential and its value from an investor's
perspective. For this reason, the Income Approach is considered the best
indicator of value for the subject property.
Based on this analysis, it is our opinion that the market value of the
HealthSouth Rehabilitation Center of Virginia Beach, as of September 29, 1993,
and based on the assumptions and limiting conditions in this report, is:
$1,460,000
-33-